May 22, 2012

October 6, 2011

Latest Canadian retail and wholesale trade and the tie-in to productivity growth

Alex Carrick

Chief Economist, CanaData

Canadian retail sales declined 0.6% in current dollars between June and July, seasonally adjusted and annualized, according to Statistics Canada. They had increased in the three prior months.

The biggest drag in the latest month came from motor vehicles and parts dealers (-2.8%).

Other declining sectors were furniture and home furnishing stores (-2.2%), electronics and appliance stores (-0.8%) and building material and garden equipment suppliers (also -0.8%).

Total Canadian retail sales year in July were up 3.9% year over year. The latest U.S. Census Bureau retail sales number was +7.9%, although it was for August. U.S. data is more current.

The U.S. figure was bolstered by a higher increase for auto sector retailers (+7.6% year over year) than in Canada (+5.7%).

In both countries, motor vehicle sales in one form or another account for approximately one-fifth of the total retail category.

Regionally, year-over-year retail sales were highest in Nova Scotia (+8.6%), Saskatchewan (+7.6%), Prince Edward Island (+7.4%) and Alberta (+5.5%). Ontario (+3.3%) was slightly lower than the national average.

On a more encouraging note, wholesale trade rose 0.8% in July (month to month seasonally adjusted and annualized) to continue a steady upward march that began in mid-2009.

The machinery and equipment (M&E) subsector registered the largest gain (+2.1% month to month).

Wholesalers of construction, forestry, mining and industrial machinery and equipment were particularly happy.

This indicates a willingness on the part of Canadian firms to invest in capital goods that will enhance productivity (i.e., output per man-hour).

In Statistics Canada’s latest gross domestic product (GDP) report, after-inflation M&E investment in Canada rose at an impressive 31.0% annualized rate between Q1 and Q2.

The M&E line item had similar rates of increase in Q2 and Q3 2010. Owners have been showing a strong commitment to the future.

M&E investment is one area of the economy where a strong dollar is an advantage, since imports make up a large percentage of purchases.

The question of how to achieve greater Canadian productivity growth is a complex one.

Many of this nation’s largest manufacturing firms are owned by a foreign parent. Corporate research and development is more likely to take place in the country where the head office is located. Most often, that’s the United States.

There’s also the matter of economies of scale. Selling into a market of 300 million plus will almost assuredly lead to more efficient processes than when the target market is 34 million.

Canadian firms have to know their customers. If they decide to concentrate on fulfilling niche requirements of a more local nature, then their strengths lie in lower transportation costs and follow-up service. Investments must be geared accordingly.

If they are willing to tackle U.S. and/or global markets, then machinery and equipment investments, as well as undertakings in logistics and systems analysis, take on a whole different dimension.

That’s the capital side. What can be said about the labour force in the aftermath of 2008-2009?

Statistics Canada has just released a study of the nation’s three recessions between 1981 and 2010.

In the three downturns, the periods covered lay between pre-recession peaks and when employment finally made its way back to the previous high.

The latest jobs downturn was much shorter in duration than the two previous plunges in the early 1980s and 1990s respectively.

Seasonally adjusted and annualized total employment in the latest recession took 27 months to return to its previous position.

In the early 1990s, the duration of the jobs shortfall was almost twice as long at 53 months. In the early 1980s, it took 40 months.

Of all workers laid off between October 2008 and December 2010, 50% found a paid job between one and four months after the event. That’s better than the 42% who experienced quick re-employment in the early 1980s and early 1990s.

Jobs and incomes are essential in supporting retail sales.

For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog. His lifestyle blog is at www.alexcarrick.com